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Vol 60 No 1

Published 11th January 2019

South Africa

Win first, then work

Ramaphosa is almost certain of victory in May, but then his challenges really begin

South Africa is facing an even tougher year economically in 2019. The disastrous legacy of former President Jacob Zuma may seem distant but its echoes will continue to sound and clog his successor's agenda. 

In his first ten months in office, Cyril Ramaphosa has made impressive strides in ridding his government and vital state institutions of corrupt elements. But the narrowness of his victory in the December 2017 African National Congress leadership election has constrained his ability to make more sweeping changes. Zuma loyalists like ANC secretary general Ace Magashule and Deputy President David Mabuza still wield significant power. Ramaphosa will be hoping that after the presidential election in May, the balance of forces on the 86-strong national executive committee of the ANC will swing decisively in his favour.

Chart Copyright © Africa Confidential 2019

Ramaphosa's State of the Nation Address on 7 February will be the joint work of a powerful committee of business-oriented advisors, Africa Confidential understands.

Ramaphosa will move decisively to rebuild institutions of democracy which were all but destroyed during the Zuma era but are now under new leadership. Worst affected were the intelligence services, the police special investigations unit, the national director of public prosecutions and particularly the national tax collector, the South African Revenue Service (SARS).

Of significant help to the reforms will be testimony to the state capture commission led by Deputy Chief Justice Raymond Zondo, which began sitting in August and will resume hearings in mid-January. Further prosecutions will be brought on the foot of the commission's investigations of the Gupta family's network of influence within the state and government, although the final report is not due until March 2020. Also, prosecutions that were delayed under Zuma will resume under the new National Director of Public Prosecutions, Shamila Batohi.

The report at the end of March 2019 of the judicial commission into the Public Investment Corporation, led by former president of the Supreme Court of Appeal Lex Mpati, is likely to join further dots in the corruption matrix and expose politically connected investments by the 2 trillion rand (US$1.4bn) fund likely to be highly embarrassing to the ANC (AC Vol 59 No 24, Fund in the firing line). Ramaphosa has skilfully used some of South Africa's most respected judges, whether serving or retired, to investigate high-level corruption.

Aided by his anti-corruption warrior Minister of Public Enterprises Pravin Gordhan and his maverick, market-sensitive Finance Minister, Tito Mboweni, Ramaphosa will have to face tough decisions on bailing out ailing state enterprises. The freight transport giant Transnet, the national airline South African Airways (SAA), the arms manufacturer Denel the national broadcaster SABC all face cash crunches and more than half the country's 278 municipalities are either technically bankrupt or nearly so. Combined government debt will top R1.6 trillion ($113.4bn) in 2019.

In his Budget on 20 February, Mboweni will have no option but to bail out Eskom, the worst victim of state capture and fast running out of money (AC Vol 59 No 20, Riyadh to the rescue). Eskom needs R20 billion ($1.5bn) by the end of March. SAA, which received only a partial bailout in the mid-term budget, will need R14bn ($1bn) by then. And the SABC, a basket case, will need R3bn ($216m).

In its March review, global credit ratings agency Moody's is likely to fall in line with Standard & Poor's and Fitch and lower South Africa to junk investment status. This will lead to forced selling of bonds by investment-grade funds and indices.

A downturn in the global economy will further hamper Ramaphosa's efforts to revive an economy battling to grow at more than 1% and dipping in and out of recession (the projected growth rate for 2019 is 1.5%). The rand is likely to move between R13.50 and R15 to the US dollar.

After the worst year for stocks in more than a decade, South African equities are expected to move into positive growth in 2019. Despite the state of the economy, hope is in the air.

Mandate wait
Ramaphosa's narrow victory and lack of an electoral mandate has constrained his ability to cut thousands of jobs in the bloated state-owned enterprises, which is in turn thwarting his commitment to revive an ailing economy that relies on dwindling state resources. But once he wins his mandate in May, he is likely, with support from Gordhan and Mboweni, to start shedding public-service employees and forming sustainable partnerships with the private sector, in line with both the letter and the spirit of the October 2018 national investment conference, which saw a new spirit of reaching out by both the government and business.

Ramaphosa and his ministers will push for a social compact with labour and business under which some 16,000 public-service jobs could be shed. It will be an important test for Ramaphosa and Mboweni to see whether he can withstand the pushback from the labour unions and civil society.

Ironically, a win for Ramaphosa in the election might not make for a stress-free year for the ANC, which remains split between competing constitutionalist and rent-seeking factions over EWC and whether to move closer to the opportunist and increasingly belligerent EFF (AC Vol 59 No 23, Ramaphosa rattled). The divide is likely to deepen as Ramaphosa speeds up reforms.

Having Zuma as the face of the ANC's campaign in KwaZulu-Natal will clearly be a major embarrassment for Ramaphosa, who had to force him out as leader in February. But it is one of a series of compromises the new President has had to make to prevent Malema's EFF and Zuma loyalists in the ANC from getting the upper hand and to maintain the fragile unity in the governing party.

Yet Ramaphosa will use the power of the incumbent to consolidate his authority. Party officials have seen him at work and know he is no pushover. He will also move after the election to draw lines of acceptable conduct for the EFF in relation to racist attacks on Public Enterprises Minister Gordhan and his family. He has threatened to sue the EFF leader. The courts could also move against senior EFF and ANC officials for their role in the looting spree at VBS Bank.

Ongoing uncertainty about the course of land reform will keep foreign investors on guard. But there is a growing acceptance in foreign capitals that once Ramaphosa has his mandate, he will put in place the mechanisms to prevent land grabs and ensure that there is no threat to either economic growth or food security (AC Vol 59 No 19, Investors weigh rescue plan & Vol 59 No 22, Cyril’s new business plan). He will also introduce a coherent and comprehensive programme of land reform which can be achieved with or without EWC.

All the rest is noise – and there will be plenty of that.


The rise of the populists

The African National Congress's legacy of poor public service delivery, continued high unemployment and homelessness and procurement corruption have been eating away at its vote for several years. There is a widespread perception that white privilege has not abated and that new black elites are getting fabulously rich through state tenders, appointments and Black Economic Empowerment (BEE). This is very fertile ground for populists within and without the ANC. 

Julius Malema and his associates have built the Economic Freedom Fighters and Andile Mngxitama the Black First Land First (BLF) movement on the perception of ANC betrayal. Jacob Zuma was the focus for their anger and now that he has gone they have embraced increasingly radical policies to make up for his absence. Both movements have exploited unresolved apartheid legacies, such as skewed land ownership, domination of mainstream business by white South Africans and continuing racism. The EFF has called for the nationalisation of banks and mines, expropriation of land with compensation and have been violently occupying companies it claims are racist. 

In 2016, Cosatu's largest trade union affiliate, the National Union of Metalworkers of South Africa, and at least nine other affiliates that opposed Zuma, formed a new trade union called the South African Federation of Trade Unions (AC Vol 58 No 10, Everyone's fault but Zuma's). Numsa has launched a new Workers' Party to contest the elections. This is likely to increase left populist lurch in South Africa's politics in 2019. 

Community protests against lack of government delivery and against 'white monopoly capital' over the past few years have not slowed and protests against poor government services, corruption, waste and lack of accountability has given South Africa the highest number of protests in the world. They have become increasingly violent as property, buildings and assets are targeted for destruction. This was seen in the 'Fees must Fall' university protests for free tuition. The genesis of attacks on property has its origin in the apartheid-era when protestors in the 1980s attacked government and white business property which were seen to 'part of apartheid'. Many communities are motivated by the ANC/EFF call for expropriation of land without compensation but some have seized unoccupied land in their immediate area on their own initiative. 

Communities across the country have also launched protests against mining companies over the lack of promised low-cost housing, local economic development and environmental rehabilitation. Encouraged by the likes of Malema, communities are also increasingly challenging the make-up of BEE deals.

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